Compliance December 28, 2005

IRS Puts Out Roth IRA Annuity Conversion Guidance

December 28, 2005 (PLANSPONSOR.com) - Federal tax officials on Wednesday released additional guidance on how to figure out the fair market value of an annuity contract that has yet to be annuitized as part of the conversion process of a traditional IRA to a Roth IRA.
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According to the Internal Revenue Service (IRS)  Revenue Procedure 2006-13 , officials have decided upon safe harbor methods for the fair market value determination. The new IRS guidance instructs tax preparers to use the methodology provided in A-12 of §1.401(a)(9)-6 with the following modifications:

  • All front-end loads and other non-recurring charges assessed in the twelve months immediately preceding the conversion must be added to the account value.
  • Future distributions are not to be assumed in the determination of the actuarial present value of additional benefits.
  • The exclusions provided under paragraphs (c)(1) and (c)(2) of A-12 of §1.401(a)(9)-6 are not to be taken into account.

The simplified safe harbor method provided in Section 4 of this revenue procedure is available where such a conversion occurs before January 1, 2006, the IRS said.

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